Layoffs are never fun. People have trusted you with their careers. Staff reductions take the polish off your startup and give pause to future investors. As a CEO, they feel like a regression. Unfortunately, they are often a necessary part of building a startup and failure to right-size a team in a timely fashion can destroy your company.
I sympathize when founders struggle to find the will to tell an employee with family responsibilities that they’ll soon be jobless, but I have little patience for those who say they “need” to maintain a large staff while struggling with product market fit. The reality is that the co-founders, and perhaps a skeleton crew, should be able to service a few B2B clients or a few tens of thousand consumer users.
The notion that large teams are needed is not borne out in history. The five examples below have an average of 40–50 employees, raised a combined $66 million* in VC and had an aggregate $26 billion in exit value.
Mojang: The makers of Minecraft surpassed $80M in revenue with just a dozen employees. Before being acquired for $2.5B, Mojang had just 51 employees supporting a $250M line of revenue, millions of users, and a vast product licensing business.
Instagram: At the time they were acquired by Facebook that had 13 employees servicing 30 million users who were uploading 50 pictures per second. Even in the era of AWS, this is a massive technical challenge to stay on top of — never mind dealing with fundraising, spam, and a myriad of other issues common to social networks.
WhatsApp: A mere 55 employees facilitated 33B daily messages between the 450M across the globe before the company was acquired for $19B. Take a minute to consider the challenge of keeping such an immense service with that sort of traction online, never mind rolling out new features with all the concomitant translation and localization issues.
Plenty of Fish: A bootstrapped dating site that had no employees for the first four years and managed to get to a $100M line of revenue with just 75 employees before selling to the Match Group for $575M.
Craigslist: 40 employees manage 60M users in the US alone, handle 80B page views and facilitates translations into Catalan, Danish, Dutch, English, Filipino, French, German, Italian, Norwegian, Portugese, Spanish, Swedish, Turkish.
When evaluating your team, use these examples as rough proxies. If Craigslist can provide a cornerstone service for the internet with 40 people, does it really make sense that your startup needs 15 prior to product market fit? Not all startups are the same, but they should strive to stay in proportion.
This is not meant as a taunt towards struggling startups, it’s tough love. When you’re struggling more hands are not the solution, they are usually the problem. Don’t confuse a need for a clearer marketing strategy, more scalable technical solutions, or a serious reevaluation of your product as an excuse to add to your staff.
You need less than you think. These teams achieved extraordinary levels of success with very little. So can you.